It depends. Tax law requires the payment of income taxes throughout the year as you earn income. This obligation can be met through quarterly estimated tax payments, tax withholding, or both. It is a good idea to set aside a portion of the money withdrawn from a tax-deferred retirement plan for the required minimum distribution (RMD) and make quarterly estimated tax payments to the IRS unless your plan custodian provides income tax withholding services. The IRS provides payment vouchers to people who make estimated tax payments, and they are due April 15, June 15, September 15, and January 15 of the following year for the first, second, third, and fourth quarters, respectively.
The only other option, if your plan sponsor does not withhold for taxes, would be to overwithhold household income taxes somewhere else (e.g., a post-retirement job or a spouse’s job) to cover the expected tax liability. It is very important to determine your expected tax liability and withhold sufficient taxes so you are not assessed an underpayment penalty. See IRS Form 505 and Publication 505 for worksheets.
To calculate your RMD, divide your account balance on December 31 of the previous year by your appropriate age-based factor for the calculation year. This Rutgers Cooperative Extension website explains the RMD withdrawal process and includes IRS life expectancy factors for ages 70 to 115: http://njaes.rutgers.edu/money/ira-table.asp. Withdraw at least the required amount of money and report the taxable portion of your withdrawal as income on your tax return. Your retirement plan custodian should be able to provide you with the information needed to complete your taxes.
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